FingerMotion, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended August 31, 2017. The filing covers a major business transition: the company changed its name from Property Management Corporation of America and, on July 13, acquired Hong Kong-based Finger Motion Company Limited (FMCL) in a reverse acquisition. FMCL, the accounting acquirer, operates and publishes mobile games; historical results therefore are not directly comparable across the transition.
Financial results
| Metric | Three months ended Aug. 31, 2017 | Comparable 2016 period | Six months ended Aug. 31, 2017 | Comparable 2016 period |
|---|---|---|---|---|
| Revenue | $57,006 | $3,856 | $70,438 | $26,109 |
| Cost of revenue | $119,892 | $2,986 | $126,958 | $20,008 |
| Gross profit (loss) | $(62,886) | $870 | $(56,520) | $6,101 |
| Operating expenses | $291,572 | $36,000 | $348,898 | $62,689 |
| Net loss | $(354,471) | $(35,130) | $(405,330) | $(56,588) |
| Basic and diluted loss per share | $(0.04) | $(0.01) | $(0.06) | $(0.02) |
For the six months, operating cash outflow was $398,220, investing cash outflow was $200,000 (license acquisition), and financing provided $1,449,423. Cash increased from $13,346 at February 28 to $864,549 at August 31. At period end, reported assets were $1,183,067 and liabilities were $248,917; the balance sheet reports shareholders’ equity of $934,150. No debt balance or interest paid is reported.
Revenue remained modest while costs increased sharply, resulting in negative gross profit and a larger net loss. Management attributes higher revenue to a game launched in August and increased cost of revenue mainly to hosting and marketing in preparation for launch. Higher operating expenses primarily reflected consulting, contract labor, and financing-related activity.
Business outlook, risks, and other notable items
- Management described three game licenses and plans to progressively launch games over the following six months, targeting markets worldwide except China. The filing describes Dragon Samurai as expected to launch within two months; this is a stated plan, not financial guidance.
- Management says continued operations depend on additional financing and eventual profitability. It warns financing may not be available on acceptable terms, or at all, and could cause dilution, restrictive covenants, or high interest costs.
- The filing reports an accumulated deficit of $563,723 and identifies substantial going-concern dependence on financing, revenue growth, and profitability.
- Disclosure controls and procedures were deemed ineffective due to a previously disclosed control weakness. Management reported no material change in internal control during the quarter.
- The company relies on a cloud-hosting provider; disruption or termination could adversely affect near-term operations. Management reported no identified current market-risk exposure.
- All revenue before the April 2017 change of control came from management contracts for two properties partly owned by the former chairman/CEO/CFO; that revenue stream ended after the control change. The company reported no material litigation and no operating leases at August 31.
- Corporate actions included a 1-for-4 reverse stock split and a share exchange. The filing also reports stock sales, shares issued for services, and subscriptions for shares not yet issued.
Important facts for investors to verify
- Reconcile balance-sheet presentation: February 28 assets are shown as $72,528, while liabilities plus shareholders’ deficit total $73,728. Also verify the filing’s characterization of working capital: MD&A says $934,150, although that amount is reported as shareholders’ equity on the balance sheet.
- Confirm the amount and status of stock subscriptions: the cash-flow statement and balance sheet show $1,275,000, while a note says $1,225,000 received; the filing also describes an agreement for approximately 1,219,366 additional shares, some not yet issued.
- Check operating-expense figures: the statements report $348,898 for the six months, while MD&A gives $348,848.
- Assess the gaming business’s launch progress, monetization, hosting and marketing costs, and ability to generate recurring revenue; the filing provides no quantified outlook or profitability timetable.
- Evaluate funding needs, potential dilution, going-concern risk, and remediation of the ineffective disclosure controls.